Money inflows to junk bonds globally amounted to a record high of $5.4 billion in the week ended July 24, while investors pulled $1.8 billion from investment-grade debt funds. The current junk-bond rally highlights investors’ preference for yield over stability, allowing the riskier borrowers to bump up indebtedness. The spread between dollar-denominated speculative-grade and investment
-grade bonds tightened to 3.18% on July 23 from 4.6% a year ago as demand for the high-yield debt surged.
Chinese stocks dropped the most in three weeks, with the benchmark Shanghai Composite Index sliding 1.7%, amid reports of weak corporate earnings and the government’s latest plan to conduct a review of state borrowings. China’s National Audit Office said yesterday it will order a nationwide audit of local government debt, prompting concern that rising public debt may potentially weigh down the world’s second largest economy.
High Income Economies...Japan’s retail sales picked up momentum in Q2, rising by 4.4% (q/q saar) versus a 2.4% increase in Q1. However, monthly sales growth in June was weak, with retail spending down 0.2% (m/m sa) after a 1.5% increase the previous month. Consumer confidence inched down in June after hitting a six year high in May.
Business confidence in Italy increased notably in July. The seasonally adjusted business confidence index, which refers to manufacturers' assessment of their business conditions, advanced to 91.7 in July from the previous month's revised score of 90.5 reflecting a broad based improvement in confidence entrepreneurs and industrial groups.
Spain's unemployment rate declined for the first time in two years in the June quarter from a record high in the beginning of the year, adding to signs that activity in the recession-stricken economy is picking up. The number of jobless persons fell to just below six million, while employment moved up as private sector firms raised headcounts. The unemployment rate fell to 26.26% in Q2 from 27.16 % in Q1.
Developing Economies…Europe and Central Asia: Turkish consumer confidence index rose to 78.5 in July from 76.2 in June. The reading was the highest since March 2012, as households turned more optimistic about their personal as well as general economic situation one year ahead.
Latin America and the Caribbean: Mexico’s trade balance turned to surplus of $855mn in June, up from $470mn deficit in May and $615mn surplus in the same month last year. Exports were up 2.5% (y/y) in June due to higher demand from the US, while imports grew at a slower pace of 1.7% (y/y). In the first six months of 2013, imports grew faster than exports (3.4% y/y vs. 0.6% y/y) resulting in a cumulative deficit of $1.9 bn.
Sub-Saharan Africa: Nigeria's central bank kept its key policy rate at 12.0%. The decision to maintain the rates was made shortly after monthly inflation data came in showing that Nigeria's inflation rate in June had eased to a five-year low. Inflation rate eased to 8.4% (y/y), down from 9.0% (y/y) in May.